Niko Resources: Ottawa's corruption test case

By Bangladeshi standards, the red-brick compound of A.K.M. Mosharraf Hossain is a country estate. A four-foot wall encircles the property in the capital city of Dhaka. The only way inside is past a guard booth and a metal gate that leads to the politician's roundabout driveway.

But there was no problem gaining admission on May 23, 2005, when two representatives from Niko Resources , a Canadian natural gas company, arrived at the gate. They were waved through with a brand-new, shiny gift—a black Toyota Land Cruiser. The two Niko officials, both Bangladeshi, stood by while the car keys were handed over to Hossain's driver.

This sort of thing is a routine transaction in many Third World countries—yet this one would go down in legal history.

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This past June, slightly more than six years after the delivery of that $190,000 vehicle, lawyers for Niko stood before an Alberta Court of Queen's Bench judge and, on behalf of the company, pleaded guilty to bribing Hossain, then Bangladesh's state minister for energy and mineral resources.

The $9.5-million fine Niko agreed to pay was heralded as the arrival of a new era in white-collar law enforcement. The RCMP had officially waded into the shadowy intersection of big business and foreign powers, and enforced the Corruption of Foreign Public Officials Act, enacted in 1998. Canadian multinationals were put on notice—just because you are overseas doesn't mean you aren't being watched. "Canada and Alberta will not stand by and let this happen," Steven Johnston, head of Alberta's special prosecution branch, told Mr. Justice Scott Brooker at the hearing.

But, for about a decade, that's exactly what government did. The two-hour hearing was a long-fated collision of three dynamic forces—an ambitious and daring company; one of the most corrupt countries in the world; and the international movement to crack down on payoffs.

Still, the hearing only revealed a smidgen of the evidence that the RCMP unearthed. It took the Justice Department and the Mounties a long time to start seriously enforcing Canada's foreign bribery laws, but once they started digging, it took them to some surprising places—including Parliament Hill.

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Niko Resources was built on one thing—the gumption of its two controlling minds.

In a crowded space like oil and gas exploration, where behemoths like Royal Dutch Shell , Exxon and BP control the global sandbox with an iron fist, lesser players can only thrive where others dare not venture. In Niko's case, that meant not being shy about exploring countries renowned for corruption and governmental red tape.

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The company's founder, Robert Ohlson, spent the early 1990s combing just such a country, India, for opportunities. Profiles of Ohlson in the media portrayed the University of British Columbia graduate as an adventurous soul, a 6-foot-3 engineer bopping around crowded Indian roads on a moped. (Ohlson passed away in 2004.)

Niko's executive other half, CEO Ed Sampson, is also tall, with the perpetual dark rims under his eyes that are typical of can-do entrepreneurs. He grew up in rural Melfort, Saskatchewan, launched his own furniture store at the age of 24, and later expanded his small-business empire with a Smitty's Pancake House franchise. But after dabbling in some local oil and gas plays—investments that connected him with Ohlson—he caught the energy bug.

Around 1995, Sampson sank $10 million into Ohlson's overseas vision. At the time, Niko was struggling to maintain its listing on the Alberta Stock Exchange. But Sampson's bold bet would eventually transform him from a small-town retailer into one of Canada's highest-paid executives, as well as one of its wealthiest citizens.

Thanks to the success of Niko's Indian gamble, the company's stock has skyrocketed from about $1 per share to highs of $114 over the past 15 years. As the first North American company to drill in India, a mushrooming economy with one billion potential customers, Niko's leadership seemed visionary. In a 2005 interview, Sampson summed up the secret of his success: "I think the key is never say 'never.' You've decided it's the right way to go, you put your shoulder to the wall and, no matter what negativity might come, if you're comfortable you're doing the right thing, you just keep pushing."

But with its next venture, Niko's interpretation of "doing the right thing" would become the subject of much scrutiny.

In the late 1990s, the discovery of a massive gas deposit in Bangladesh, India's poorer neighbour to the east, attracted scores of oil and gas players, including majors such as Mobil and Chevron. Though still relatively unknown, Niko competed alongside the majors for the attention of the Bangladeshi government, then formed by the centre-left Awami League. In 1998, Ohlson told The Globe and Mail that he regularly dropped $10,000 in expenses during each of his frequent trips to Dhaka. Yet these entreaties did not persuade the Bangladeshis. The company was disqualified from bidding on access to gas fields on technical grounds in the late '90s.

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But by 2002—just before Niko was applauded as the biggest gainer on the TSX—the political winds had changed considerably. The recent election of the centre-right Bangladesh Nationalist Party, led by Khaleda Zia, the widow of a former Bangladeshi leader, offered Niko a second chance.

So in April, 2002, Ohlson was back in Dhaka. By design, his visit coincided with a trade mission by a delegation of Canadian politicians. Among them was Liberal MP Mac Harb, a colourful and quirky politician who was a long-time supporter of then-prime minister Jean Chrétien. Harb, a former Ottawa city councillor, had a reputation for speaking his mind, a mind that contained some unusual ideas—including the belief, which he once declared on a talk radio show, that human clones had been created and were walking among us.

Ohlson urged Harb and the rest of the delegation to support a joint-venture agreement between Niko and Bangladesh's state-owned gas company, BAPEX, to start drilling near a village called Tengratila.

Perhaps Harb was keen on helping a Canadian company deliver a modicum of prosperity to a land of such vast poverty. Perhaps Harb and Ohlson bonded over their shared backgrounds as engineers. Whatever the appeal, the politician soon took a keen interest in the company.

In the autumn of 2003, Harb and Niko both received good news. Chrétien was stepping down as prime minister, but before he did, he made Harb's long-rumoured appointment to the Senate a reality. And on the other side of the world, the government of Khaleda Zia came around and handed Niko a joint venture agreement with BAPEX. Times were flush: That same year, Ohlson and Sampson landed on a list of Canadian executives with the most generous stock-option packages, each receiving $5.1 million worth.

But the spell of good luck in Bangladesh ended with a bang.

On Jan. 7, 2005, just eight days after the company plunged its first drill bit into one of its fields near Tengratila, the morning sky lit up with fiery orange flames. The ground exploded with such force that it left a crater the size of a baseball field.

Nobody was killed—luckily, the blast occurred before the start of the day at a nearby school. But the village was evacuated, parts of the school were condemned and the fire burned for weeks, wasting millions of dollars' worth of gas.

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Geographically, Bangladesh is cursed. Situated on the largest delta in the world, the country is fertile but flood-ravaged. Every year, the Ganges' waters sweep over 25% of the country's land mass, destroying infrastructure, spreading disease and setting back its impoverished masses—a population of more than 160 million.

Corruption in the government is as much a given as spring flooding—and the government of Khaleda Zia, which gave drilling rights to Niko, was more corrupt than most. Zia's son, Tarique Rahman, was known throughout Dhaka's coffee shops and slums as "Mr. 10 Per Cent." His notorious racketeering spawned a small industry of middlemen and lobbyists—mostly his friends—all boasting of access to the Prime Minister's office and all looking for a cut of the action.

(This rampant corruption has not deterred aid organizations. The country ranks amongst the largest recipients of funding from the Canadian International Development Agency, which, in addition to promoting neonatal health care, fair elections and transparent government, also handed Niko a $67,000 grant in 2001 for helping the Bangladeshi economy to grow.)

Given their low standard of living and dismal prospects, the villagers of Tengratila were not in a mood to forgive and forget when a Western company backfired so spectacularly on their home ground. When Niko's Canadian executives visited the blast site, they were greeted by mass protests and vociferous demands in the press for compensation.

It was in this hostile climate that Zia's government was tasked with deciding how Niko should compensate the villagers. It only took a month for it to determine that the blowout was due to the "faulty and negligent operation of Canadian company Niko Resources" and that the government had the power to order payments. The decision about how much, however, would be heavily influenced by the say of one man, shortly to be the owner of a new Land Cruiser—Energy Minister A.K.M. Mosharraf Hossain. Hossain was also an important voice in an ongoing dispute between Niko and the government over a gas purchase and sale agreement.

Less than two weeks after he received Niko's gift in May, 2005, Hossain checked into a Calgary hotel to attend an oil and gas exposition. Accompanying him was his friend, a man he described as his "brother," Selim Bhuiyan. At the time, Bhuiyan was the manager of the Dhaka Club, an exclusive hangout for the city's elites. The job immersed him in the milieu surrounding the Prime Minister's son.

Niko paid for the men's flights and their rooms, as well as subsequent side trips Hossain made to New York and Chicago to visit family. However, the company's largesse never had an impact on his decision-making, Hossain insists.

In an interview conducted at his home in Dhaka, about a year before Niko formally admitted in court that it tried to bribe him, he denied being influenced. Seated directly under a large oil portrait of himself, Hossain chain-smoked and offered a rambling response as to whether he had ever accepted any benefits from the company. "Do you think they are such fools that they will offer me directly? If they had offered, if they wanted to offer, they would offer indirectly," he said, before issuing an emphatic denial. "I have not been offered indirectly by...Niko, or Niko agents or anybody," he said.

Later on, though, he allowed that, perhaps, he received something. "Niko…maybe, at times helped me in some way or other. Say for instance when I was in Canada. Maybe they have looked after me..…That is hospitality. But not financially," he said. "I've not taken a single pie from anybody."

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Ever since the United States prohibited its companies from paying foreign bribes in 1977, the merits of the law have been hotly debated. The complaints from industry are many: The law will never end bribery because the practice is innate and as old as business itself; it has placed Western companies at a disadvantage to Russian and Chinese multinationals that can bribe with impunity; the law's primary purpose is to help accountants, lawyers and other "specialists" in corruption-fighting to accumulate billable hours.

Supporters of the law counter that bribery undermines the rule of law, erodes trust and enables political leaders to hoard proceeds that should be spread among the masses—practices that the world's leading democracies cannot allow their corporations to facilitate.

If there is common ground, it's that if foreign bribery is illegal, the law needs to be universally enforced.

A key figure in the push for universality is Peter Clark, a former official with the United States Department of Justice who spent the 1990s trying to persuade the other member nations of the OECD to follow the lead of the United States and ban foreign bribery. It was a process that Clark describes as "faster than watching grass grow, but slower than golf."

By 1997, he had garnered enough support, including a vote from Canada, to pass the OECD's anti-bribery convention and force laggard Western countries to catch up. And on Dec. 7, 1998—just four days before Niko's shares started trading on the Toronto Stock Exchange—Canada's Corruption of Foreign Public Officials Act quietly passed through Parliament.

For a tiny group of Canadian trade lawyers who had been clamouring for such a law, it seemed like the dawn of a new era. But almost before they had a chance to celebrate, they were told to lower their expectations.

Milos Barutciski, a regulatory expert who advised the government on the drafting of the law, quickly arranged a professional conference concerning the new prohibition. Afterward, over a meal with a senior lawyer from the Department of Justice and several other colleagues, Barutciski pressed the federal official, whom Barutciski declines to identify by name. How many police officers and prosecutors was Ottawa going to devote to this new international effort?

"We're not dedicating any resources," he says he was told.

"It was disheartening," says Barutciski, now a partner at Bennett Jones. "At the same time the government was issuing press releases out of Foreign Affairs about how Canada was doing the right thing…these guys were saying, 'That's it. We're not doing anything more.'

"I was blown away. If you're not dedicating resources to it, then you effectively have no law."

Canadian officials have never explained why Ottawa did not take the convention more seriously in its early days. In an interview, one federal government lawyer theorized, "It was an international political convention and it probably sailed through cabinet without skin off anyone's nose.…Why did it take so long [to enforce] If you're suggesting that there wasn't enough attention put to it, I can't argue with that."

But if the federal government believed it could shirk its obligations, it underestimated the will of the OECD and the power of public shaming.

While other member nations were dedicating investigators and prosecutors to the anti-bribery cause, and racking up staggering fines against major corporations along the way, Canada largely did nothing. In 2007, at a Washington, D.C., conference of anti-corruption lawyers, Canada was included in a list of countries dubbed the "coalition of the unwilling." Transparency International, the anti-corruption group, routinely ranks Canada alongside countries like Bulgaria and Greece for its poor performance. As part of the OECD convention, each member country is graded on its efforts, and Canada's reviewers have repeatedly expressed dismay about how a country that is home to so many international mining and oil giants has garnered only one conviction.

(Even that conviction was not the product of government initiative. An energy service company called Hydro Kleen pleaded guilty to bribing a U.S. immigration inspector in 2005. Almost all of the evidence was collected by a private investigator who had been hired by one of Hydro Kleen's competitors.)

As recently as May, the chair of the OECD anti-bribery group was still chastising Canada. "It's quite astonishing that, having so many operations in such difficult areas, one has not more cases," said Mark Pieth, a Swiss lawyer who has overseen the OECD group since its inception in 1990. "What I have to say to Canada is, wake up to your responsibilities. And be what you're actually assuming to be, and that's an economic superpower—a G7 superpower. That brings obligations with it."

The message had in fact resonated, even if it had yet to produce results. By April, 2008, the RCMP had hand-picked 15 officers, at a cost of $3.1 million annually, to exclusively investigate cases of foreign bribery by Canadian companies.

On the other side of the world, the corruption of Zia's government became too much for Bangladesh to bear. In a quasi-coup, the country's military disbanded Zia's regime and began arresting all of her son's associates, as well as Minister Hossain, extracting confession after confession. (The crackdown went right up to the Prime Minister's office, and included the 2007 arrest of Zia herself. She has since been released, but her son remains in exile in the United Kingdom.)

What they had to say would lead investigators to suspect that it was more than just steely resolve that landed Niko its Bangladeshi foothold.

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Before rousing Giasuddin al Mamun from his prison cell, the soldiers waited until the sun was dropping from Dhaka's smoggy skies. It was always wise to conduct videotaped interviews after the work day, when the city's intermittent blackouts finally subsided.

It was Nov. 1, 2008, a tense time. The military was still in power. Officially, al Mamun had been found guilty of weapons possession. Unofficially, he was guilty of being friends with Tarique Rahman, Mr. 10 Per Cent.

Al Mamun was delivered to a nondescript house in an affluent neighbourhood. He could be forgiven for thinking that whatever waited for him inside would be deeply unpleasant. Instead, he was greeted by two affable, middle-aged Canadians with buzz cuts and dark suits.

The one with the big smile was Corporal Lloyd Schoepp, an RCMP officer who had quit a career as a retail banker in Banff to pursue a lifelong dream of being a cop. The other, Corporal Kevin Duggan, was an expert in recovering the illicit profits from drug dealing.

Over the next two days, with breaks for rest and Domino's pizza, al Mamun gave the RCMP officers a crash course in Third World corruption.

Al Mamun's candid interviews with the Mounties, as well as other evidence gathered by the RCMP during their trip to Dhaka, have been detailed in a 72-page affidavit filed in Alberta court by Corporal Duggan. The police officer's sworn statement—which he filed in support of an application to access banking records—had been sealed by court order, until The Globe and Mail launched a court challenge to have the material released. After a six-month legal battle with the Crown Attorney's office and Niko, Mr. Justice William Tilleman agreed to release a heavily redacted version.

Al Mamun told the police officers that his introduction to Niko came in 2002 when someone—whose name has been redacted from the affidavit—dangled an offer of $1 million if al Mamun could land drilling rights for the Canadian company. As an appetizer, al Mamun said he was given a retainer of about $10,000. But he was ultimately unable to make the deal happen on his own. As a mere buddy of the Prime Minister's son, there was only so much he could do. "My power is 50%," he said.

During Schoepp and Duggan's time in Dhaka, the military handed over all documents requested by the Mounties, including a signed confession made by Selim Bhuiyan—the same social-club manager who travelled with Minister Hossain to Calgary, at Niko's expense, for the energy exposition.

After sitting in a jail cell for four days, Bhuiyan had been hauled before a magistrate, where he made an admission similar to al Mamun's: Someone—whose name has also been redacted from Duggan's affidavit—offered him more than $1 million if he successfully helped land the gas fields for Niko.

After Niko was handed drilling rights, more than $500,000 (U.S.) appeared in Bhuiyan's bank account, the confession stated. From there, Bhuiyan said he dispersed some of the money to the cast of characters surrounding Prime Minister Khaleda Zia—including al Mamun. A portion of the payment, Bhuiyan believed, would go to al Mamun's friend, the Prime Minister's son. Hossain, the former minister who would not take "a single pie" from anyone, received a total of $102,000, the confession alleged.

Niko begs to differ. "We have consistently denied that any bribes were paid on Niko's behalf to secure the Agreement," the company said in a recent statement. "This matter was fully investigated by the authorities and no charges were laid against Niko in relation to those allegations."

For their part, the Mounties were able to corroborate parts of the confession: Al Mamun confirmed that he had been paid a retainer of at least several thousand dollars; they followed some of the money flows through bank records; they even negotiated a meeting with Bhuiyan in Montreal in a failed bid to persuade him to become an informant. (In Duggan's affidavit, he stated that Bhuiyan confirmed most of his confession, except that he said some of the bank transfers were actually a "series of loans between friends." Bhuiyan also claimed he confessed under the duress of torture.)

The evidence was sufficient for Duggan to state in the same court filing that he had "uncovered information that [Niko]used bribes to influence [Bangladeshi]public officials in order to secure the Joint Venture Agreement." But when Niko's day in court arrived this past June, it made no admissions about any impropriety concerning its drilling rights. (Indeed, lawyers for Niko claim that Bhuiyan later recanted his confession on that score in a Bangladeshi court filing.) The guilty plea strictly related to Hossain's luxury SUV and vacation, which were given to mitigate damage from the blowout. And, as is standard with most plea agreements, the RCMP agreed to end its investigation of the company's Bangladeshi operations in return for the admission of guilt.

So why didn't the police pursue the other charges?

For one thing, gathering evidence in Bangladesh is a challenge. Alleged recipients of graft never make the most credible witnesses, and an unfettered security apparatus complicates life for even the most capable prosecutor. When word got out that the military was rounding up interview subjects in Dhaka for the Canadian police, at least two people on the RCMP's wish list simply fled the country.

Then there's the logistics of getting Bangladeshi witnesses before a Canadian court. "How are you going to get them into court for trial? Are you going to use a video link? All sorts of problems kick in," Duggan says. "We play to win.…With what we had, we had them dead-to-rights. So, if the investigation went on forever, could we prove everything bad that was ever done? Yeah, we could. Maybe. Maybe. But eventually you've got to draw a line in the sand."

That line has not been drawn for Senator Harb, whose relationship with Niko is being probed by the RCMP as part of a criminal breach of trust investigation.

As the Mounties combed through diplomatic cables and interviewed former Canadian high commissioners, they learned that, after being appointed to the Senate, Harb returned to Bangladesh at least four times between 2004 and 2006 to help Niko navigate the fallout from the explosion. Foreign Affairs officials were keeping their distance from Niko because of concerns it might have paid bribes. Yet Harb, against the wishes of the diplomatic corps, advocated for the company with Bangladeshi ministers. He was paid $65,000 for acting as a consultant in a private capacity, Niko said in a statement.

Senators are allowed to accept employment outside of their duties in the Red Chamber, and many work for law firms and sit on corporate boards, but they are forbidden from using their title as a public office holder for private gain. Duggan has alleged in that same affidavit that Harb's trips to Bangladesh, which he made on his special green passport reserved for public officials, were "contrary to the bona fide interests of the Canadian public."

The senator was repeatedly warned by Foreign Affairs to cease his lobby efforts, Duggan's affidavit shows. On one of his final trips to Dhaka, the then-Canadian high commissioner to Bangladesh was so incensed that she confronted the senator at his hotel. In an interview with the Mounties, she said that she was "not happy" Harb "had actually met with the [Bangladeshi] Minister of Foreign Affairs at his home, at night without me, and without me being aware of the meeting."

The senator has issued a statement saying he has never used his office for personal gain and that his work for Niko was cleared by the Senate ethics officer. However, he has not said what he told the ethics officer about the work he was doing in Bangladesh. Nor has he explained why a well-paid senator needed to actively solicit work from a corporation (Niko chief Sampson has said that the relationship began with Harb approaching the company). Duggan's affidavit, however, provides a hint.

As part of their probe, the Mounties scrutinized the senator's finances and learned that, during the years he worked for Niko, he had 26 active credit facilities—including more than a dozen credit cards—and was carrying a debt load of more than $560,000. That total does not appear to include a mortgage.

Harb was questioned by investigators in early 2011, but the Mounties will say nothing about where their investigation is headed. In his statement, Harb has said he is confident he will be cleared of any wrongdoing.

As for Niko, the former stock market darling has seen a precipitous drop in its share price. It was fluctuating between $60 and $70 as of late July, a decline of about 40% from a year ago, shedding $1.7 billion from its market capitalization. Though the descent started long before the bribery admission, Niko's new criminal record will do nothing to ingratiate it with investors and analysts. Institutional investors may remain wary, at least while Niko wears what the sentencing judge, Mr. Justice Brooker, called a "dark stain."

"Difficult headlines like this will lead to companies suffering some pain in the currently weak equity markets," Nathan Piper, an analyst with RBC Dominion Securities, said shortly after the guilty plea.

Sampson, who in 2010 became the highest-paid CEO in Canada by one calculation, remains optimistic. In the company's annual report, he highlighted Niko's newest explorations in Trinidad and Tobago, as well as a deepwater drill in Indonesia. "Two thousand and twelve could prove to be Niko's most exciting year," he said in the report.

Next year promises to be equally exciting for the RCMP's international anti-corruption unit. The force has said that it is investigating more than 20 cases of alleged overseas bribery.

During their trip to Dhaka, the Mounties discussed the anti-bribery law, and what good it might do in the world, with their military helpers. "Everyone saw how important this is. This was good for Bangladesh," Corporal Duggan says.

But there is at least one naysayer in the country's elite. During the interview at his home, former minister Hossain offered a meandering diatribe against the "lies" and "conspiracy" that landed him in jail for two years.

"Corruption is there everywhere in the world. Corruption was there, is there, will be there."

With research by David Montero in Bangladesh. Research assistance provided by the PBS program Frontline .

CORRUPTION CASE FILE

Arms for Africa: It all seemed so believable. Two African political aides kept popping up on American soil, offering up fat contracts to U.S. weapons manufacturers like Smith & Wesson. All they had to do was pay a little graft to secure the deal. But in January, 2010, when police spread out across the Shooting, Hunting, Outdoor Trade Show in Las Vegas and arrested nearly two dozen executives and salesmen, the "African aides" were revealed for who they really were—undercover FBI agents.

BAE and the Saudis: A round-the-world yacht tour, a cargo jet rental to bring back the purchases from a Los Angeles shopping spree—these were some of the gifts enjoyed by the Saudi royal family that were paid for by BAE Systems, the world's third-largest arms manufacturer. Under Saudi pressure, Prime Minister Tony Blair urged British prosecutors to stand down. In 2010, BAE pleaded guilty in the U.S. to false accounting and making misleading statements in relation to allegations of corruption. It paid a fine of about $400 million (U.S.).

Making the oil flow: Albert (Jack) Stanley, the former chairman of Kellogg Brown & Root, one of the top contractors to the U.S. government, pleaded guilty in 2008 to approving the bribery of Nigerian officials in return for a lucrative contract for installing a natural gas rig. Sentencing guidelines suggest he will be sent to prison for more than six years, but the decision has been postponed more than 10 times.

Pay to build: Bribery became part of the business model for German engineering giant Siemens. From 2001 to 2007, the company distributed about $1.4 billion in graft to public officials around the world—in poor countries such as Bangladesh and Vietnam, but also in developed nations like Italy and Argentina. In 2008, the company paid record-setting fines totalling $1.6 billion (U.S.) to the German and U.S. governments.

Greg has been a reporter with The Globe since 2005. He has probed a wide variety of topics, including police malfeasance, corruption and international corporate bribery. He was written extensively about the Airbus affair, offshore tax evasion and, most recently, Toronto Mayor Rob Ford and his criminal ties. More

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